Chapter 2 Practice Test 1. Corcetti Company manufactures and sells prewashed denim jeans. Large rolls of denim cloth are purchased and are first washed in a giant washing machine. After the cloth is dried, it is cut up into jean pattern shapes and then sewn together. The completed jeans are sold to various retail chains. Which of the following terms could be used to correctly describe the cost of the soap used to wash the denim cloth? A) Choice A B) Choice B C) Choice C D) Choice D 2. Ruggeri Corporation reported the following data for the month of July: The cost of goods sold for July was: A) $196,000 B) $120,000 C) $148,000 D) $244,000 3. A partial listing of costs incurred during February at Urfer Corporation appears below: The total of the period costs listed above for February is: A) $379,000 B) $277,000 C) $61,000 D) $318,000 4. Last month a manufacturing company had the following operating results: What was the cost of goods manufactured for the month?

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A) $350,000 B) $385,000 C) $377,000 D) $323,000 Feedback: Sales - Cost of goods sold = Gross margin $412,000 - Cost of goods sold = $62,000 Cost of goods sold = $350,000 5. An opportunity cost is: A) the difference in total costs which results from selecting one alternative instead of another. B ) the benefit forgone by selecting one alternative instead of another. C) a cost which may be saved by not adopting an alternative. D) a cost which may be shifted to the future with little or no effect on current operations. 6. Dagg Corporation reported the following data for the month of October: The total manufacturing cost for October was: A) $84,000 B) $114,000 C) $176,000 D) $165,000 7. Which two terms below describe the wages paid to security guards that monitor a factory 24 hours a day? A) variable cost and direct cost B) fixed cost and direct cost C) variable cost and indirect cost D) fixed cost and indirect cost 8. Management of Sourwine Corporation is considering whether to purchase a new model 320 machine costing $389,000 or a new model 280 machine costing $318,000 to replace a machine that was purchased 6 years ago for $376,000. The old machine was used to make product C78P until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 280 machine. It has less capacity than the new model 320 machine, but its capacity is sufficient to continue making product C78P. Management also considered, but rejected, the alternative of simply dropping product C78P. If

that were done, instead of investing $318,000 in the new machine, the money could be invested in a project that would return a total of $405,000. In making the decision to buy the model 280 machine rather than the model 320 machine, the sunk cost was: A) $376,000 B) $318,000 C) $405,000 D) $389,000 Feedback: The original cost of $376,000 is a sunk cost. 9.

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